ČEZ CEO out, as Nečas redoubles nuclear efforts

The sudden, surprise removal of Martin Roman as CEO of state-owned energy giant ČEZ has prompted a flood of speculation but seemingly boils down a simple shareholder revolt against the direction of the company.

"The big change is how the management views the majority shareholder, [the state]," said Energy Security Ambassador Václav Bartuška, who has a lead advisory role to the government for the Temelín project.

"There was a perception on the part of the government and the public that the management of ČEZ is independent from what the majority shareholder wants. Now there is a clear message that the majority shareholder is the boss."

The removal of Roman, who has now been named head of the company's supervisory board, seemed to come out of the blue Sept. 15, with politicians like President Václav Klaus and Deputy Prime Minister Karolína Peake (Public Affairs, VV) saying they had no prior knowledge of the plan. The events temporarily frightened investors, further pushing down the company's stock value.

Nečas and Roman said the decision was mutual and was meant to take place next February but had to be expedited because the information was leaked to the press and uncertainty in the ensuing months would hurt the company's stocks.

Even so, in the days following Roman's removal, Nečas' justifications of the move have been critical of the company's recent strategy under Roman, and he has said more changes to top management are in store. 

"It ends an era of development mainly associated with foreign acquisitions and starts another, whose main theme will be the expansion of nuclear power," Nečas told Bloomberg News. He told the daily Mladá fronta Dnes that Roman had hired management that worked like "mercenaries" focused only on immediate financial results rather than long-term strategy.

Roman was at the helm of ČEZ in its golden years when it became the largest utility company - and indeed the largest company in terms of market capitalization - in Central Europe through a long list of acquisitions, quadrupling the stock price from his appointment in February 2004.

However, those acquisitions came back to haunt him, dropping the company's Standard & Poor's bond rating from A- to a BBB+, primarily based on the hangover from stretching the company too far on foreign acquisitions that did not produce enough in profits. The company also saw its general reputation deteriorate, as evidenced by an ongoing European Commission investigation for anti-competitive practices.

Nečas has made it clear his No. 1 concern moving forward is realizing the expansion of the Temelín nuclear plant, which includes a lucrative tender valued at some 500 billion Kč for the immediate addition of two nuclear reactors, with the promise of a contract for three more. There are three final bidders at present, in a process that has dragged on with multiple delays over the course of the past three years. Nečas argues that because the bids are expected to be decided on next year, it makes sense to replace Roman now and have the same leadership for the duration of the expansion project.

But not everyone is convinced the process should unfold so expediently.

"No one should be chosen based on the current bids, and I would definitely not force ČEZ into a decision in 2013, because it would make no commercial sense," Bartuška said.

Though perhaps not a direct cause-and-effect, the shift in management comes just days after the release of a draft energy policy that envisions a significant boost in nuclear capacity by 2060, with the most dramatic scenario seeing nuclear power account for 80 percent of domestic energy needs.

Nečas said his other priority is reducing perceptions of ČEZ as being driven by politics and personal agendas rather than business. Those comments come as a subtle jab at Roman, as more reports surface about his possible connections to the holding company Appian. That firm now owns Škoda Holding a.s., a Plzeň-based engineering company that Roman formerly led as CEO. The firm is unaffiliated with the automaker.

There is speculation that Roman may have benefited from Appian's acquisition of Škoda Holding a.s., an allegation Roman has denied.

Nečas has said he will increase Bartuška's role in the Temelín tender.

"I suppose it's because of my reputation; I'm not linked to any political party in this country, and I've not been anyone's stooge," Bartuška said.

As an unaffiliated, unelected official, he is insulated from political pressure and independent, Bartuška added.

An organizational structure where the executive and supervisory board are both selected by the government is normal for majority state-owned enterprises, according to Alex Papalexopoulos, a California-based energy consultant and CEO of Ecco International Energy Consulting. Such arrangements "can work as long as the elected body acts independently and there are transparency rules in place to ensure that political influence is minimized," he said.

However, he added, there is the risk that "a cozy relationship between the board and the state develops which creates the appearance of a conflict of interest or a situation where clear interference takes place."

The fact Roman will stay on as head of the supervisory board, while his replacement is former Chief Operating Officer Daniel Beneš, who is seen as a close ally, has quelled some investors' fears. But many who have been critical of ČEZ's past management still doubt the motivations behind the shift.

"It makes no difference; everything will basically stay the same in the way ČEZ is managed. The only reason for this shift was that Roman changed from manager to a more political position, so I expect in the future he will be nominated to some political position," said Ondřej Liška, chairman of the Green Party.

"We definitely need someone with a much more modern perspective on energy policy. This is actually bad news that doesn't change anything; it only makes it worse."

Cat Contiguglia can be reached at
ccontiguglia@praguepost.com